U.S. Securities and Exchange Commission
Litigation Release No. 15891 \September 21, 1998
SECURITIES AND EXCHANGE COMMISSION v. INNOVATIVE CONSULTING
SERVICES, INC. ET AL., Civil Action No. 98-1548 (W.D. Pa.)
The Securities and Exchange Commission ("Commission")
announced today that, on September 18, 1998, it filed a
complaint in the United States District Court for the
Western District of Pennsylvania, against Innovative
Consulting Services, Inc. ("ICS"), a registered broker-
dealer, and its principal, Richard W. McHenry ("McHenry").
The complaint alleges that the defendants violated Sections
5(a), 5(c) and 17(a) of the Securities Act of 1933
("Securities Act"), Section 10(b) of the Securities Exchange
Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The
complaint further alleges that ICS also violated Section
15(c) of the Exchange Act and Rule 15c1-2 thereunder. Based
on those violations, the Commission seeks permanent
injunctions, disgorgement, prejudgment interest and civil
penalties against each of the defendants.
In its complaint, the Commission alleges that, from 1993
through 1996, McHenry, acting through ICS, engaged in a
scheme in which he fraudulently raised more than $16 million
from hundreds of investors, many of whom were elderly and
retired. The complaint charges that, as part of the scheme,
McHenry induced investors to purchase limited partnership
interests by making false and misleading statements
concerning the degree of risk associated with those
investments and the intended use of investor proceeds.
Specifically, the complaint alleges that McHenry misled
investors by promising them a 13% annual return on their
investment while failing to disclose that most of the
businesses in which their funds would be invested were in
poor financial condition and were unable to pay investors
either the principal or interest owed them. The complaint
further alleges that McHenry, without notifying investors,
often used funds raised from new investors to pay existing
investors their promised 13% return. The complaint also
charges that McHenry misappropriated at least $237,258 of
investor funds for his personal use and that ICS received
approximately $480,000 in underwriting fees for the
offerings.
Without admitting or denying the allegations in the
complaint, the defendants have consented to the entry of an
order permanently enjoining them from violating the cited
provisions; ordering McHenry to disgorge $237,258 plus
prejudgment interest and ICS to disgorge $480,000 plus
prejudgment interest; and waiving the payment of
disgorgement and prejudgment interest, and not imposing
civil penalties, based on the defendants' demonstrated
inability to pay.